SCHNAPF ENVIRONMENTAL  REPORT
A Newsletter Covering Recent Environmental Developments and Caselaw
July 2001						Vol. 3, Issue 4	

Editor’s Note

Contents
Page 2 Mold May Soon Be Included in Phase I ESAs
Page 2	Understanding the Historic Data Gaps in the ASTM Phase I ESA Standard   
Page 4 	Revised ASTM ESA Standards Established New Category For Historical Environmental Conditions
Page 5	EPA Asbestos Ban Does Not Apply to Certain Building Materials
Page 5	New Jersey Supreme Court Allows Homeowner Suit To Proceed Under Real Estate Disclosure Law
Page 6	Historic Use of Pesticides Should Be Considered In Due Diligence
Page 7	Effectively Using Secured Creditor Policies
Page 8	Using Secured Creditor Policies in Multi-Site Transactions
Page 8	Coverage May be Available for Off-Site Plumes
Page 9	Federal Appeals Court Upholds NOx Rule
Page 9	OTC Reports On Results of Emissions Trading Program
Page10	First SIP Call NOx Trades Announced
Page10	Indiana Approves NOx Trading Program
Page10	New York Delays Start of Emissions Reductions
Page10	California Modifies Emission Trading Programs
Page11	Wither the NSR Enforcement Initiative?
Page12	US Companies Voluntarily Reducing GHG Emissions
Page12	Pilot GHG Emissions Market To Be Tested in Midwest
Page13	Canadian GHG Emissions Predicted To Rise To Meet US Energy Demands
Page13	EU Reports on GHG Emissions
Page13	Study Says Three States May Lose Title V Authority Over Deficient Enforcement
Page14	Company Agrees to Replace Equipment To Settle CFC Enforcement Action
Page14	EPA Bringing Enforcement Actions Against Construction Sites
Page15	Wisconsin Governor Signs Law to Protect Wetlands
Page15	Reports Say CWA Fails To Stem The Loss of Wetlands
Page16	Supreme Court Allows Owner to Bring Takings Claim for Pre-Existing Regulations
Page17	Residential Complex Ordered To Correct Drinking Water Problems
Page17	EPA Report Indicates 43% of LUST Fund Used for Administrative Costs
Page18	GAO Study Finds Many States Lack Sufficient Enforcement Tools To Combat USTs Violations
Page18	Drinking Water Wells Near Previously Closed UST Site Contaminated With MTBE
Page19	Washington Becomes 11th State to Ban MTBE
Page19	EPA Assumes Responsibility Of Management of Nine Colorado Sites
Page19	Computer Recycling and Electronic Equipment Leases Growing in Popularity	
Page21	EPA Brings Enforcement Action Against Apartment Building Manager For Lead-Based Paint Violations
Page21	EPA Fines UCLA and UCSD for Failing to Register Transformers
Page22	PCB Regulations May Apply to Fluorescent Light Bulbs
Page23	Shopping Center Tenant Liable To Adjacent Owner for Dry Cleaner Contamination	
Page24	EPA Brownfield Pilots Shifting to Remediation
Page24	Local Officials Object to EPA Capping Remedy
Page25	Corps Halts Dredging Project at NY Brownfield Site
Page25	Minnesota Brownfield Grant Will Be Used to Cleanup Duluth Site
Page25	3 Sites Selected for Rebuild Now-NY Program
Page25	Indiana Enacts Brownfield Tax Credit	
Page26	Brownfield Site May Be Impacting Residential Development
Page26	NJEDA Announces $328,000 in Municipal Brownfield Grants
Page26	Latest EPA Prospective Purchaser Agreements
Page27	Alaska Supreme Court Clarifies Scope of State Lender Liability Exemption
Page28	State Court Rules Owner Cannot Recover Demolition Costs of Contaminated Building

DUE DILIGENCE/ AUDITING/ DISCLOSURE/ ENFORCEMENT

Mold May Soon Be Included in Phase I ESAs 
While mold is not usually addressed in environmental due diligence , it is fast becoming a concern to building owners, contractors, architects and insurers. In the past few years, hundreds of lawsuits have been filed for mold damage to homes, apartment complexes, commercial buildings, schools and courthouses.
One reason for the proliferation of the mold lawsuits is the use of cheaper building materials such as plywood and plasterboard which are more prone to breed molds when wet. However, homeowners are also becoming increasingly aware of the health issues associated with molds and are now filing claims when they discover mold under sinks, under floors and behind wallpaper. One insurer estimates that over $50 million in mold claims this year. Indeed, the Texas Insurance Council of Texas estimated that mold-related claims have risen 135% since 1999. As a result, insurers in Texas have asked the Texas Insurance Commissioner to exclude coverage for mold damage from standard homeowners policies. 
Texas is one the leading states for mold-related lawsuits. For example, a jury in Austin, Texas recently awarded $32 million to a couple who sued their insurer after the company allegedly failed to repair a water leak in their 22-room home in Dripping Springs, Texas. The jury awarded $6.2 million in actual damages  $12 million in punitive damages, $5 million for emotional distress, and $8.9 million in attorneys’  fees. In December, another insurer settled a mold-related bad-faith lawsuit for $1.5 million in Blum v. Chubb Custom Insurance Co. (No. 99-3563, Nueces Co., Texas Dist. Ct.).
California is another popular venue for mold lawsuits. A California homeowners group recently settled a $1.3 million mold lawsuit against builders and contractors in Club at Wood Ranch v. Roberts Group (No. 21522, Ventura Co., Cal. Super. Ct.). This action followed another California case where a federal jury awarded $18 million to a homeowner against an insurer who declined coverage (Anderson v. Allstate Insurance Co., No. 00-907 (E.D. Cal.)).  All but $500,000 of the verdict was for punitive damages. The trial judge subsequently reduced the award to $3 million.
In New Haverford Partnership v. Stroot (2001 Del. Lexis 201, May 7, 2001), the Delaware Supreme Court upheld a $1.04 million award against a landlord for failing to address leaks and mold problems in two apartments. The plaintiffs said they suffered asthma attacks and other health problems from mold. 
	Some of the earliest mold damages cases have been brought in Florida where the humid climate provides a good conditions for mold. In 1997, a plaintiff was awarded $11.5 million plus attorneys' fees for mold damage to a Florida courthouse. In Centex-Rooney Construction Co. v. Martin County (706 So.2d 20, Fla. 4th Dist. Ct. App. 1997), the county sued the architect and builders for construction defects in a $13 million courthouse that led to mold damage. 15 workers became sick from the mold. The total value of the verdict exceeded the cost to construct the courthouse. 
Commentary: There are no federal standards for mold though the EPA published a guideline for remediating mold in schools and commercial buildings. New York City has established guidelines for assessing and remediating mold. In addition, a number of states in the south and west are considering enacting mold-related legislation. For example, the California legislature is considering a number of bills that would establish cleanup standards for mold and mandate disclosure of mold problems when buildings are sold or leased. If these laws are adopted, Phase I ESAs in these states will have to address the possibility of mold infestation.
There are more than 100,000 species of mold. Most types of mold are not hazardous to healthy individuals though prolonged or excessive exposure can cause or exacerbate asthma or other allergies. Molds sometimes produce chemicals called mycotoxins that can cause illness in sensitive people. The species of greatest concern is Stachybotrys chartarum or Stachybotrys atra which is commonly called black mold. It can grow on materials with a high cellulose content such as drywall sheetrock, dropped ceiling tiles and wood that become chronically moist or water-damaged due to excessive humidity, water leaks, condensation, or flooding.  
Understanding the Historic Data Gaps in the ASTM Phase I ESA Standard
	In prior issues, we have discussed the importance of performing comprehensive historical investigations during environmental due diligence. Many prospective purchasers and banks financing the acquisition or providing refinancing believe that a thorough site history will be done when ordering an environmental site assessment that strictly complies with the ASTM E1527-00. However, the ASTM E1527-00 has a number of potential data gaps that can cause a consultant to not identify a prior use that could have resulted in environmental impacts to the property. 
For example, the ASTM E1527-00 only requires a consultant to review eight types of standard historical sources that are “reasonable ascertainable” and “likely to be useful”. The standard defines “reasonably ascertainable” as records that are publicly available, obtainable within reasonable time and cost restraints and practically reviewable. The standard further states that information that is not available within 21 days of a request is not available within a reasonable time constraint.  Information is considered available within reasonable cost restraints when the information can be retrieved and duplicated at only a nominal cost. 
ASTM requires a consultant is to use its professional judgment in determining what information is reasonably ascertainable or useful. When a consultant is given limited time to perform due diligence or has agreed to perform a low-priced ESA, the consultant may determine that certain types of information may not be reasonably ascertainable. Indeed, in some areas of the country, the consultant community has determined that reviewing records from the local government are not practically reviewable and are not included in the standard Phase I ESA. Clients may be required to pay an extra fee to have those records reviewed.
The ASTM standard also only requires that consultants review historical sources at five-year intervals. This interval can be a problem for older shopping centers that may have had dry cleaners. A recent study from Florida indicated that over 90% of dry cleaners operating before 1990 have released dry cleaning solvents into the environment. Yet, the average dry cleaner operates for three years so a five-year interval might not identify the existence of a dry cleaner tenant.
Another data gap routinely encountered is reliance on city directories to identify former tenants at shopping centers. However, many city directories only list the owner of the property. To ensure that a comprehensive list of tenants is developed, the client should request the consultant to review commercially available business directories. These directories should be reviewed for every year that the shopping center was in existence to make sure that environmentally problematic tenants like dry cleaners will be identified.
Revised ASTM ESA Standards Established New Category For Historical Environmental Conditions 
The goal of the ASTM E1527-00 standard was to establish protocols for discovering Recognized Environmental Conditions (“RECs”). Environmental professionals are obligated to identify RECs that were visually and physically observable during the site visit or that were identified in interviews or record reviews. 
The definition of REC applies to the presence or likely presence of hazardous substances indicating that a release or threatened release has or may have occurred in the past into structures on the property, or into the soil, groundwater or surfacewater of the property. The term includes the presence of hazardous substances or petroleum under conditions that are in compliance with environmental laws. However, it does not include de minimis conditions that did not present a material risk of harm to public health or the environment and that generally would not result in any enforcement action if brought to the attention of governmental agencies. 
One problem with the definition of REC was that it may not necessary comport with requirements of various state cleanup and reporting laws. In addition, it is difficult to predict if a particular level of contamination may set off an enforcement action. De minimis concentrations of hazardous substances might trigger enforcement actions if there are environmentally sensitive areas, local drinking water wells, or the site is located in a residential community. 
In addition, there has been considerable confusion about whether an REC identified in a prior ESA such as a leaking underground storage tank, past release that has been remediated using a risk-based cleanup approach, an NFA letter with reopeners or contamination that has been addressed using engineering or institutional controls to prevent exposure to on-site residual contamination should still be considered an REC. As a result, section 3 of ASTM 1527 now contains a new term Historical Recognized Environmental Condition (“HREC”). This term refers to environmental conditions that would have been considered RECs but may not be considered RECs because the conditions have been remediated to the satisfaction of the applicable government agency. Such satisfaction might be evidence by a NFA letter or its equivalent. Other Conditions that might qualify as a HREC include:
•	Contamination that is being naturally attenuated.
•	A site where the cleanup has been completed but there is ongoing O & M program.
•	Contamination remains under a building but the state environmental agency has concluded the contamination cannot be remediated.
The standard indicates that the environmental professional performing the ESA should take into account the current impact that the environmental condition has on the property in determining whether it is a REC or HREC. 
Commentary: Decisions on HRECs may require input from lawyers. For example, if an adjoining site has impacted the property but the contamination is being remediated by the adjoining property owner, does this qualify as a HREC? Does it depend on the likelihood that the adjoining property owner would indemnify the user or whether the user would have a cause of action for stigma damages? Also, if the property itself has been remediated and been issued a No Further Action letter with reopeners, does the presence of the reopeners prevent the ERC from being considered an HREC? Another illustration might be a property containing an engineering control in the form of a cap that is subject to institutional controls preventing disturbance of the soil. If the property owner fails to maintain the cap, it could become liable for addressing the contamination? If so, should the cap be considered a HREC? What if the property owner plans to expand a building into the area of the cap?  Would this transform the HREC back into an ERC? Thus, it is advisable that an environmental professional should consider consulting with an environmental attorney before concluding that a historic condition may be a HREC.  
EPA Asbestos Ban Does Not Apply to Certain Building Materials
The ASTM E1527-00 identifies asbestos as a non-scope item. This means that a consultant will not look for the presence of asbestos during a Phase I unless a client specifically requests that asbestos be included within the scope of the ESA. Many clients mistakenly believe that asbestos was banned from buildings in 1972 and thus do not request that asbestos be included in ESAs for newer construction. 
While it is true that many products used in the construction of buildings no longer contain asbestos, there are still building materials can still contain asbestos. Thus, it is still important for purchasers of buildings and their lenders who are financing acquisitions or providing refinancings to request that consultants note the presence and condition of suspect asbestos-containing materials (“ACM”). If known ACM is present, the building owner should develop an asbestos O & M Plan. If there is just suspect ACM and the building was constructed after the asbestos ban went into effect in 1993, it would still advisable for an owner to take samples of suspect ACM prior disturbing the material unless the building owner can establish that the building was constructed of asbestos-free materials.  Owners should also consider inserting requirements in their construction contracts requiring contractors and architects to use asbestos-free materials.  
Commentary: Asbestos is primarily regulated under the federal Clean Air Act (“CAA”) National Emission Standard for Hazardous Air Pollutant (“NESHAP”) and the Toxic Substances Control Act (“TSCA”). In 1971, EPA identified asbestos as a Hazardous Air Pollutant and promulgated an asbestos NESHAP in 1973. The asbestos NESHAP banned the use of ACM that was sprayed or troweled on surfaces for fireproofing/insulating. 
	In 1978, EPA extended the asbestos NESHAP to spray-applied ACM used for "decorative" purposes. In Nov. 1990, EPA revised the asbestos NESHAP to prohibit spray-on application of materials containing more than 1% asbestos to buildings, structures, pipes, and conduits unless the material was encapsulated with a bituminous or resinous binder during spraying and the materials were not friable after drying. The revised NESHAP still allowed spray-on application of materials on equipment and machinery that contain more than 1% asbestos where the asbestos fibers in the materials are encapsulated with a bituminous or resinous binder during spraying and the materials. The revised NESHAP allowed the application of friable materials where either no visible emissions are discharged to the outside air from spray-on application or specified methods are used to control emissions containing particulate asbestos material before they escaped or were vented to the outside air. EPA also banned the use of thermal insulation in 1975 for wet-applied and pre-formed asbestos pipe insulation as well as pre-formed asbestos block insulation on boilers and hot water tanks.
	In 1989, EPA implemented a phased ban on the manufacture, importation, processing and commercial distribution of most asbestos-containing products (the “Asbestos Ban”) under TSCA. However, in 1991, the United States Court of Appeal for the Fifth Circuit vacated and remanded most of the Asbestos Ban. In November 1993, EPA re-issued the Asbestos Ban. The revised rule reinstated the ban for six categories of products including corrugated paper, rollboard, commercial paper, specialty paper, flooring felt, and new uses of asbestos. However, the following asbestos-containing products were no longer subject to the Asbestos Ban: vinyl-asbestos tile, roofing felt, roofing coatings, caulking putties, construction mastics, textured coatings, asbestos-cement shingle, corrugated sheet, asbestos-cement flat sheet, pipeline wrap, millboard, asbestos-cement pipe, and asbestos-cement. 
New Jersey Supreme Court Allows Homeowner Suit To Proceed Under Real Estate Disclosure Law
In 1995, the New Jersey legislature enacted the New Residential Real Estate Off-Site Conditions Disclosure Act (the “Disclosure Act”) which requires persons who own, lease or maintain potentially dangerous off-site conditions to provide the municipal clerk of each municipality in which the conditions exist with a list of those conditions and to update the list annually. The law also requires the seller of new real estate construction to provide the prospective purchaser with a notice of the availability of the lists of off-site conditions and to inform the buyer that it has the right to cancel the contract within five days of its execution. Parties who comply with the law may not be sued under the state Consumer Fraud Act.  
In 1987, the Edison Glen constructed a condominium complex containing 315 units that was located near three federal "Superfund" sites. Two of those sites were located within two miles of the Edison Glen complex. In 1997, 90 purchasers of the units filed a suit against the developer for negligence, fraud and misrepresentation, breach of contract, breach of warranty, and violation of the Consumer Fraud Act when the owners learned from an appraiser that the market value of their units had declined by 40% because of the proximity of the Superfund sites.  The plaintiffs alleged that the defendant developer knew or should have known of the nearby Superfund sites but failed to disclose that information to them before they purchased the condominiums. 
The defendant filed a motion to dismiss on the grounds that the Disclosure Act barred the claims. A trial court initially ruled that all of the claims except for the Consumer Fraud case were barred but on a motion for reconsideration, the court concluded that the Disclosure Act also precluded the precluded plaintiffs' Consumer Fraud Act claims. However, in Nobrega v. Edison Glen Associates (327 N.J. Super. 414, App. Div. 2000), the Appellate Division reversed, holding that the Disclosure Act did not bar Consumer Fraud Act claims for intentional failure to disclose off-site conditions affecting the value of properties but did not address the fact that the plaintiffs had purchased their condos prior to the passage of the Disclosure Act 
On appeal, the New Jersey Supreme Court (2001 N.J. LEXIS 527, May 22, 2001) found that the Disclosure Act was enacted to respond to an earlier decision holding that a builder-developer of residential real estate or a broker could be liable to a purchaser for nondisclosure of known off-site physical conditions that were unknown and not readily observable by the buyer if the existence of those conditions rendered the property substantially less desirable or valuable to an objectively reasonable buyer. The court then ruled that the Disclosure Act prospectively precludes plaintiffs from suing sellers and developers of real estate under the Consumer Fraud Act for failure to disclose off-site conditions, provided that the sellers and developers satisfy their off-site disclosure responsibilities under the Planned Real Estate Development Full Disclosure Act ("PREDFDA") and the Air Safety and Zoning Act of 1983. 
On the retroactive issue, the court said the legislature intended the Disclosure Act to apply retroactively to real estate contracts that pre-dated the law. The Court said that the Disclosure Act would not be applied retroactively if that would result in manifest injustice. In particular, the court ruled that the Disclosure Act could not be applied retroactively to homeowners who had a remedy under PREDFDA since they would not suffer a manifest injustice by the retroactive application of the Disclosure Act. However, those plaintiffs who were barred from filing a PREDFDA claim because they became aware of the diminution of their property values after the PREDFDA statute of limitations had expired could maintain common law and Consumer Fraud Act causes of action.  Because of the limited record before the Court, the matter was remanded to the trial court for a determination of which, if any, of the homeowners could have pursued a PREDFDA claim within the limitations period set forth in that law.
Historic Use of Pesticides Should Be Considered In Due Diligence
In our August 2000 issue, we discussed the importance of inquiring into the use of pesticides and chemicals on farmland or property that was formerly farmland. Farmers have used a wide variety of pesticides and chemicals over the last 100 years to control pests and increase crop yield. These substances often remain in soil long after they have been applied. As a result, pesticide residues can often be found in soils at levels that may pose a human health risk long after farming activities have ceased.  
For example, a New Jersey study found up to 5 percent of the state's acreage might be impacted by the historical use of arsenical pesticides. Arsenic was detected above the DEP's residential soil cleanup criteria in 38% of the samples. 
Pesticides tend to adhere to fine soil particles and organic matter rather than to sandy soils. Pesticides become tightly bound to soil particles so that migration of the contamination into the soil is limited. In most cases, contaminant levels decrease substantially with depth, usually reflecting background levels at 1.5 to 2 feet below the surface. However, the addition of some fertilizers or lowering of soil pH and irrigation may affect the downward mobility. While arsenical and organochlorine pesticides are not particularly water-soluble, they can pose some risk to shallow aquifers in acidic, sandy soils. Moreover, pesticides bound to soil particles may impact surface waters by contaminant migration via soil erosion and runoff.
Because of these concerns, many municipalities have ordinances prohibiting the movement of soil from development sites. At this time, only Michigan requires sampling for pesticide residues before a former farmland site can be developed. A recent survey indicated that lenders in Alaska, California, Connecticut, Delaware, Idaho, Illinois, Iowa, Michigan, Minnesota, Montana, New York, Rhode Island, South Carolina, South Dakota and Texas often require that soil samples be collected before approving a loan. 
Commentary: The primary concern with historical pesticide residues is human health risk from inadvertent ingestion of contaminated soil by children or from drinking water. Thus sites contaminated by historical pesticide that will use public water supplies or will be covered with impermeable surfaces such as parking lots are not likely to pose significant risks. 
If a residential development will have potential exposure pathways from unpaved areas of playgrounds, there are a number of remedial actions that developers can take. For example, developers could add a one-foot layer of clean soil as a cap with a vegetative cover to stabilize. Other options include excavating and disposing of contaminated soil, or blending contaminated soil with clean soil from on-site or off-site sources so that the residential use remediation criteria are met throughout the soil column. Most states accept remedial actions such as the removal or the covering of contaminated soil. Several states including Delaware, Massachusetts, Michigan, Minnesota, Missouri, New York, Rhode Island South Carolina and Texas also allow but do not mandate the use of institutional controls as part of a remediation.

ENVIRONMENTAL INSURANCE

 Effectively Using Secured Creditor Policies, Continued
In the past few issues we have been exploring ways to effectively use secured creditor policies in transactions. In this installment, we discuss a situation where the borrower is interested in buying a shopping center with known contamination from a prior dry cleaning tenant. In this example, the borrower is comfortable with the risk but is concerned that a lender will be reluctant to extend a loan on the contaminated property and that the borrower will be unable to obtain insurance coverage. 
Experience has shown that insurers are more willing to issue insurance policies to lenders under circumstances where a borrower could not obtain coverage. This is because the secured creditor policy has a “double trigger” where the insurer does not have to pay under the policy unless there is a “pollution condition” and an “event of default”. In many circumstances we have seen that the insurer issues the policy based not on the site environmental conditions but on the creditworthiness of the borrower. Thus, when the borrower is comfortable with the environmental risk at a site, the borrower may simply want to pay for a secured creditor policy instead of trying to obtain its own policy and then adding the lender has an additional insured. 
To issue a secured creditor policy for a site with known contamination, an insurer will usually require the borrower to enter into a written commitment to remediate the contamination in the loan documentation and possibly to enter into a cleanup agreement with the state (or enroll in a state dry cleaning program where the contamination is associated with a dry cleaning operation). In some instances, an insurer may also want the lender to establish an escrow or hold back a portion of the loan equal to the estimated remediation cost.      
Commentary: As we mentioned in our last issue, the standard definition of default in the secured creditor policy has been a financial default (i.e., failure to make a scheduled payment). Lenders should try to modify the definition of default to include any condition that would constitute an event of default under the loan. At the same time, the lender should make sure that loan documents provide contain an environment covenant to remediate contamination in accordance with the terms of a cleanup plan.  By doing this, a lender will be able to make a claim under the policy if the borrower simply fails to undertake the cleanup as required under the loan as opposed to having to wait for the borrower to fail to make a required payment.
Using Secured Creditor Policies in Multi-Site Transactions
	Another frequent question involves secured creditor policies for multi-site transactions. For example, a borrower acquires 12 shopping centers and obtains a secured creditor policy covering all of the sites. One of the properties has known contamination which has been disclosed to the insurer and which is covered by the policy. However, the borrower fails to promptly remediate the site within the period specified by the loan documents. The question then arises does the default trigger the entire loan balance or just the loan balance for that site? 
	The policy usually applies to each mortgage note. Thus, if a separate note is issued for each property, then the default will only apply for the note that is in default. A more interesting issue occurs when the note may apply to several properties or the properties may cross-collateralize several notes. Often times, there may be an endorsement which identifies loan values for each property. In such a case, the lender would only be able to recover the loan balance allocated for the property that is in default. However, in the absence of such an endorsement or language, the policy may be triggered for the value of a mortgage note that is collateralized by several properties in the event there is an event of default for one of those policies.  
Coverage May be Available for Off-Site Plumes
	Lenders are often concerned that contamination at an adjacent property may migrate onto a borrower’s property and impair the value of its collateral. Traditionally, insurers have agreed to cover pollution conditions emanating or migrating from an insured property but not contamination coming onto the property from an off-site source. However, we have begun to see increasing willingness of insurers to provide coverage for off-site conditions migrating onto property, especially where a responsible party is remediating the contamination. Another factor has been the EPA policy that provides owners of property with aquifers contaminated from off-site sources will not be liable for remediating the plume if they do not exacerbate the problem. Many states are adopting similar policies. Insurers may also be influenced by a fact that the property is connected to drinking water and is substantially paved so that there are no pathways of exposure.

AIR POLLUTION DEVELOPMENTS

  Federal Appeals Court Upholds NOx Rule 
In May, the Court of Appeals for the District of Columbia upheld the EPA Ozone Transport Rule requiring power plants in the midwest and southeast to reduce nitrogen oxide (“NOx”) emissions (Appalachian Power Co. v. EPA, No. 99-1200, 5/15/2001). 
In this case, a group of northeastern states filed a petition under section 126 of the Clean Air Act (“CAA”) alleging that emissions from the coal-fired power plants contributed to smog conditions along the Atlantic Seaboard. In 1999, EPA issued a finding that agreed with the petition and promulgated a rule on January 18, 2000 requiring nearly 400 power plants to reduce their NOx emissions. The affected plants challenged the rule, arguing that most of the pollution in the northeast states was caused by their own mobile sources. They also argued that EPA could not require reductions in NOx emissions under section 126 before the so-called NOx SIP Call rule when into effect. EPA had issued the NOx SIP Call in 1998 that had required 22 states to submit new State Implementation Rules (“SIPs”) that would provide for lower NOx emissions. Last August, the D.C. Circuit court delayed implementation of the NOx SIP Call until 2004 (Michigan v. EPA, No. 98-147, 8/30/2000).  
While the D.C. Circuit upheld the Ozone Transport Rule, it did conclude that EPA had used incorrect data for allocating emissions allocations. The court found that EPA underestimated projected growth in electric power generation in many of the midwest states. Since this would result in insufficient emission allowances, the court remanded the growth projections to EPA for revision.
Commentary: We have been reporting in our prior issues how the cost of emission allowances have soared in California as a result of the state energy shortage. The court’s decision appears to have confirmed the concerns of energy industry officials that EPA’s growth projections could result in a shortage of emissions allowances elsewhere in the country which would further drive up the price of allowances and result in higher energy prices. 
According to ICF Consulting, the new NOx emissions limits scheduled to go into effect on May 31, 2004 under the NOx SIP Call will cause widespread increases in electricity prices in eastern states. However, ICF noted that many electrical generators plan to invest several hundred million dollars in pollution control equipment over the next three years. The company said that generators with proactive compliance and market strategies would be well-positioned to take advantage of the ensuing higher NOx allowance and electricity prices attributable to the NOx SIP Call. 
OTC Reports On Results of Emissions Trading Program 
According to a report issued by the Ozone Transport Commission (“OTC”), the market-based emission trading program that was put in effect in nine states in 1999 has reduced NOx emissions in northeastern states 11% below legal limits and 60% below 1990 levels.  
Under the OTC emissions trading program, member states are assigned allowances for their NOx sources. Each allowance allows a source to emit a ton of NOx during the ozone season of May to September. Sources may use, bank, buy or sell their allowances as needed to comply with their emissions limits. 
OTC plans to implement another round of NOx reductions in 2003. EPA will also be implementing a NOx regional trading program for the 19 states subject to the NOx SIP Call (see related story below). 
Commentary: A coalition of 20 environmental groups including the Public Employees for Environmental Responsibility have asked EPA to impose a moratorium on state emissions trading programs. Thus far, EPA has proposed to approve emission trading programs in 4 states -Illinois, New Jersey, Michigan, and New Hampshire. The critics charge that these state emissions trading programs create emissions credits that are not verifiable and therefore do not actually cap emissions. The opponents also say that the programs enable companies to sell credits for emissions reductions that do not exist.
With emission trading programs coming attack, the Connecticut legislature passed a law requiring older power plants to meet more stringent NOx and SO2 emissions limitations by the end of December 2004 without using emissions trading. Connecticut Governor John Rowland vetoed the legislation out of concern that lack of emissions trading will hinder the ability of the plants to satisfy the state’s energy demands
First SIP Call NOx Trades Announced 
Now that the EPA NOx SIP Call has withstood legal challenges, emission sources are beginning to look for ways to achieve the stringent NOx emissions standards that are slated to go into effect beginning in 2003. One of the compliance strategies will be purchasing NOx allowances. Indeed, a trade was recently brokered for 50 tons per year of NOx allowances for the years 2003 through 2007. The allowances were sold for $3,400.
Commentary: The NOx SIP Call will expand the scope of the existing NOx emission trading market to large fossil fuel fired facilities throughout 19 states located in the midwest, northeast, and southeast. 
Indiana Approves NOx Trading Program 
The Indiana Air Pollution Control Board (“IAPCB”) has approved the Indiana Nitrogen Oxides Control Rule issued by the state Department of Environmental Management (“DEM”). The rule was passed to comply with the NOx SIP Call.  
Approximately 60% of NOx sources in Indiana are large industrial boilers or electric utilities. The DEM rule seeks to reduce NOx emissions statewide by 31% from 1995 levels by May 31, 2004. The plan calls for a 66% reduction in NOx emissions fossil fuel electric plants and a 55% reduction from large industrial boilers. The rule establishes a cap and trade emission allowance program.
New York Delays Start of Emissions Reductions
The New York Department of Environmental Conservation (“DEC”) has proposed regulations that would delay the start of more stringent SO2 and NOx emissions limits for electric generating plants for one year. Under the draft rule, power plantswould be required to reduce their year-round NOx emissions to those allowed during the summer by 2004. The plants are also required to further reduce SO2 emissions by 50% by 2008. 
Meanwhile, the DEC published an emergency rule that expanded the situations when backup generators may be used. Generators with a capacity of up to 150 megawatts could run for up to 200 hours per year when the state’s Independent System Operator declares that a power interruption is imminent. Previously, the backup generators could only be used when there was an actual power interruption. The generators may only use diesel fuel that contains 30 parts per million or less of sulfur. The DEC plans to issue final regulations that will establish emission standards for the generators which emit 100 times more NOx than natural gas plants. 
California Modifies Emission Trading Programs 
California recently lifted air emission limits on power plants which will allow them to run at full capacity this summer as long as the electricity produced is sold in the state. 
  	The action will allow natural gas-fired plants to operate at maximum capacity through October 31 without having any of the excess emissions counted against their emissions allocations. The directive applies to peaker plants that generally are permitted to operate for only a few hundred hours a year as well as other gas-fired power plants that have been shut down because of air pollution restrictions. However, the plants would have to pay a mitigation fee to offset the excess emissions. 
Earlier this year, Governor Gray Davis issued an executive order that allowed peaker plants to operate during any power emergency. The governor also signed a bill that streamlined the approval process of power plants and provided greater flexibility for meeting air quality standards. Under the law, the California Air Resources Board (“CARB”) and local air districts must establish criteria for retrofitting older power plants with pollution control equipment. The retrofits would have to take place by December 31, 2004. The measure also required CARB to adopt a statewide program for banking, trading and purchasing emission reduction credits for power plants and natural gas transmission facilities by July 1st. 
Earlier, the California South Coast Air Quality Management District (“SCAQMD”) announced changes to its Regional Clean Air Incentives Market (“RECLAIM”) emission trading program. Under the revised rules, power plants that generate more than 50 megawatts of electricity will be taken out of the RECLAIM program. The plants will be barred from trading or purchasing RECLAIM Reduction Trading Credits (“RTCs”) until at least 2004. The plants will be required to install best available retrofit controls as soon as possible but no later than Jan 1, 2003, for boilers and Jan. 1, 2004, for turbines. At the same, SCAQMD established a regional mitigation bank to offset excess emissions by power plants. Facilities must pay $7.50 per pound of excess NOx emissions. The district will use the funds to reduce emissions from other sources in the Los Angeles area. 
While the state was taking action to allow power plants to exceed their emissions allocations, San Francisco and local environmental groups filed a lawsuit against the Mirant Corp charging that the company is illegally operating its peaker plants above the maximum 877 hours per year limitation.  Mirant reached an agreement with the Bay Area Air Quality Management District (“BAQMD”) where the company would pay $20,000 per ton of excess NOx emissions in exchange for permission to run the plants on an as-needed basis in order to keep up with energy demand. The lawsuit also claimed that the BAQMD violated California environmental review law by not allowing the public to comment on the suspension of Mirant’s operating limits. 
Commentary: We have reported in prior issues about the dramatic increase in the price of emissions credits in California. The average cost of NOx credits recently soared to $45,000 a ton. As a result, the credits have become largely unavailable to RECLAIM participants that are not power plants. Indeed, 67% of the RECLAIM Trading Credits (“RTC”) were purchased by power plants who comprise less than 5% of the 364 facilities that participate in the trading program. Program participants who had postponed installing emission control equipment suddenly found themselves priced out of the RECLAIM market when the price of the RTCs spiked upward. Thus, while the RECLAIM changes may initially result in increased emissions from power plants, local officials are hopeful that the mitigation fees will help reduce emissions from other sources and eventually lead to improvements in air quality. 
Wither the NSR Enforcement Initiative?
In May 2001, the energy task force headed by Vice President Dick Cheney recommended that EPA review its NSR program to determine its impact on new utility and refinery generation capacity, energy efficiency and environmental protection. On June 22nd, EPA released a background paper as part of a 90-day review of the NSR program. The agency intends to hold 4 public meetings and will issue a final report to President Bush on August 17th.  The Department of Justice is also conducting a separate review of the NSR program to determine if its existing NSR enforcement initiative is consistent with the CAA. 
Just before these reviews were announced,  Marathon Ashland Petroleum LLC agreed pay a $3.8 million civil penalty and spend about $6.5 million on two environmental projects to resolve alleged violations that it failed to comply with NSR requirements. The company will spend an estimated $265 million to reduce air emissions from seven petroleum refineries by more than 23,000 tons per year.  The 7 refineries comprise more than five percent of the total refining capacity in the United States. As part of the settlement, Minnesota and Louisiana will each receive $50,000 of the penalty. 
Under a separate settlement, the company also agreed to reduce benzene emissions at a refinery in Robinson, Ill. The company will pay a $1.67 million civil penalty and spend another $125,000 on an emergency response project.
Commentary: Initially, the NSR enforcement initiative was limited to coal-burning power plants. However, in prior issues we have discussed how the federal government has extended its NSR enforcement activity to sources in other industrial sectors who may have increased their output during the recent economic expansion. The Marathon Ashland agreement was the fourth settlement in the refinery NSR enforcement initiative. These settlements involve nearly 30 percent of the total U.S. refining capacity. 
US Companies Voluntarily Reducing GHG Emissions 
A recent EPA study indicated that greenhouse (“GHG”) emissions in the United States decreased by 2.1% from 1998 to 1999 largely due to voluntary actions taken by US companies. Many companies are voluntarily reducing their GHG emissions to gain credit under section 1605(b) of the Energy Policy Act of 1992, to anticipate future GHG regulations, to improve their environmental image, to defray rising energy costs or to compete effectively in European and Japanese markets where GHG rules are already in place. 
For example, Royal Dutch/Shell has decided to stop burning off natural gas at oil fields by 2008. The company has modified the economics used in its cost-benefit analyses of potential projects to include the costs of GHG emission penalties that will likely be implemented in the future. In deciding which projects to undertake, Shell now includes a $5 penalty for each ton of carbon dioxide that will be emitted from 2005 to 2009, and a $20 per ton penalty after 2009. 
Another company taking a proactive approach to GHG emissions is Entergy Corporation. The company became the first U.S. utility to voluntarily cap its CO2 emissions for the next five years at 2000 levels. The company hopes to achieve 80% of the emissions reductions from operational changes and 20% from emissions trading. The agreement was reached by working with the Partnership for Climate Action which is an international group of companies that plan to reduce their CO2 emissions by 80 million metric tons annually by 2010.
Since 1997, Texaco has been annually reporting GHG data from its business units. The company retained KPMG and URS Corporation to independently audit the company’s GHG program. Phase I of the project which involved a systematic review of the company's emissions inventory protocol was just completed. Phase two of the project will include examining the supporting data for emissions estimates from 1997-1999.  
Pilot GHG Emissions Market To Be Tested in Midwest
The first U.S. pilot GHG emissions trading program will be launched shortly by Environmental Financial Products of Chicago. The program which will be called the Chicago Climate Exchange will initially include emissions sources in seven Midwest states: Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, and Wisconsin. The exchange hopes to cover the entire United States, Canada, and Mexico in 2003, and then expand internationally in 2004. 
The exchange expects to trade all six greenhouse gases covered by the Kyoto Protocol. These gases are CO2, NOx, methane, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
Participants will be issued tradable emission allowances and would commit to a phased schedule for reducing their emissions by 5% below 1999 levels by 2005. Participants must initially reduce GHG emissions 2% below 1999 levels for 2002 and then I% each year thereafter. The companies will either reduce their emissions or purchase allowances from other companies that have achieved surplus reductions. Participants will also be able to generate or purchase credits for domestic and foreign emissions offsets projects that produce power without GHG emissions such as solar and wind energy projects. Potential offset projects could include forest expansion, conservation soil management and other carbon sinks as well as capture and use of agricultural and landfill methane. The exchange would establish standards for monitoring emissions, determining offsets and conducting trades.
Commentary: 21 states and two Canadian provinces are considering establishing CO2 emissions trading programs. Current estimates are that CO2 credits should cost approximately $5 per ton until 2010 and may increase to $20 per ton thereafter. 
Canadian GHG Emissions Predicted To Rise To Meet US Energy Demands
According to a study by the Suzuki Foundation, Canadian GHG emissions will rise 44% above Kyoto Protocol targets to meet the energy needs of the United States. The report said this would continue a trend from 1990-1998 which saw Canadian natural gas exports to the U.S. more than double. According to the study, the increased Canadian GHG emissions will come from tar sands expansion projects in Alberta, new natural gas production, and new coal-fired energy projects that are planned to meet the new U.S. energy demands. The report said that Canada is the single largest foreign source of energy for the United States.
As a result of the growing United States demand for Canadian natural gas, many Canadian utilities are shelving plans for natural gas fired plants and developing coal-fired power instead since coal is cheaper than current natural gas prices. In addition, other industries, such as cement manufacturing, are switching to coal power. For example, in Alberta, which primarily relies on coal fired power generation, many analysts had predicted that the bulk of new electricity generation would be from natural gas plants. However, as a result of the high demand and the higher prices for natural gas in the export market, most new power supply projects have been overwhelmingly for coal fired power plants.
Commentary: The study indicated that from 1990 and 1999, U.S. CO2 emissions rose 18%. It predicted that annual U.S. demand for natural gas will grow 32% from 1999-2010. At the same time, U.S. coal consumption is expected to increase 21.5%. 
EU Reports on GHG Emissions
Based on data compiled by the European Environment Agency, Ireland, Austria, Belgium, Denmark, Greece, Italy, the Netherlands, Portugal and Spain are likely exceed GHG emission targets established under the 1998 EU "burden-sharing" deal agreement. 
Between 1990 and 1999, Ireland’s GHG emissions increased by 22.1%. Portugal had the next highest increase with 31.2% followed by Spain (24.3%) and Greece (16.7%). In comparison, Germany’s emissions dropped by 15.4% and Britain by 8.9% over the same period. GHG emissions throughout the EU were down by 4% from the 1990 base year which is halfway towards the 8% reduction required by Kyoto. In contrast, the United States experienced an 11% increase in GHG emissions. 
Study Says Three States May Lose Title V Authority Over Deficient Enforcement
In our last issue, we reported that Maryland could lose its authority to administer the Title V air permit program in December because of enforcement deficiencies in its program. Recently, a study published by the National Environmental Trust (“NET”) indicated that Texas, Ohio and Georgia might also lose their authority to administer their Title V permit programs. 
The 1990 CAA Amendments established the Title V operating permit which was to be administered by the states. States were required to submit their operating permit programs to EPA for approval by 1993. EPA provided two-year interim authorizations to the states and extended this authority a number of times when states could not correct deficiencies in their programs. EPA was sued by the Sierra Club who claimed the agency did not have authority to continually extend the interim authorizations. In the settlement of that lawsuit, EPA agreed to require states to submit revised programs by June 1st. Those states that do not receive EPA approval by December 1, 2001 will lose their authority to administer the Title V program. 
Currently, 22 states have deficiencies in their Title V programs. Facilities that have already been issued operating permits in states with deficient interim programs will be able to continue to operate under those state-issued permits. However, facilities in states that lose their interim approval and that have not received permits by December 1st will have to obtain federal permits and would be subject to federal enforcement. 
Commentary: Approximately 30,000 facilities were expected to become subject to the Title V program. However, many facilities took actions so that their emissions would drop below the thresholds that trigger the program. As a result, only 19,000 facilities have applied for Title V permits.  
Company Agrees to Replace Equipment To Settle CFC Enforcement Action
Air Liquide America Corporation agreed to replace refrigeration equipment containing refrigerants with ozone-depleting substances (“ODS”). The action settles an EPA enforcement action that charged the company with releasing ODS from 22 facilities located in 18 states. Air Liquide is the world's largest manufacturer of industrial and medical gases, such as super-cooled liquid oxygen, nitrogen, and other gases.
Under the agreement, Air Liquide will replace or completely retrofit 46 industrial refrigeration systems now using regulated chlorofluorocarbons (“CFCs”) to systems using non-ODS refrigerants, and will retire seven more systems which use ozone-depleting refrigerants. The company will pay a $4.5 million civil penalty and will dedicate an undeveloped parcel of land for open space as an "environmental justice" supplemental project in Louisiana. The company will also donate a two-acre parcel of land it owns to a local Fire Department for a new two-bay fire and emergency response station.
Commentary: The production and importation of new CFCs has been banned in the United States after Jan. 1, 1996 though stockpiled and recycled CFCs can be used to service and maintain existing air-conditioning and refrigeration equipment and vehicles. Air-conditioning systems in cars or trucks older than 1994 require CFC-12 refrigerant. HFC-134a is used in new vehicles and may be used a replacement for CFC-12. However, small amount of CFCs may be produced for export to developing countries to fulfill their needs during their transition to zero use of CFCs, and for essential uses approved under the Montreal Protocol. 

WATER POLLUTION/ENDANGERED SPECIES

 EPA Bringing Enforcement Actions Against Construction Sites
Concerned about widespread noncompliance with the federal stormwater program at construction sites, EPA recently launched an enforcement initiative against developers and construction contractors in Virginia, Pennsylvania, Maryland, Delaware, West Virginia, and the District of Columbia. 
For example, the agency recently ordered Airston Group developers to draft a dredging plan and correct severe erosion and stormwater pollution problems at a housing construction site in Fairfax County, Va. The developers allegedly never applied for a permit to control runoff from construction activity, which included the drainage of a farm pond on the site. 
Wal-Mart Stores Inc. and 10 of its building contractors recently agreed to pay $1 million to settle a federal stormwater enforcement action. The alleged violations occurred at 17 construction sites in Texas, New Mexico, Oklahoma and Massachusetts. Wal-Mart Stores also agreed to implement a $4.5 million environmental management plan to increase compliance at each of the store's construction sites.
Commentary: Under the EPA Phase I storm water regulations, operators of construction sites of five or more acres must obtain a permit, develop a Storm Water Pollution Prevention Plan (“SWPPP”) and implement Best Management Practices (“BMPs”). The Phase II stormwater regulations will regulate construction sites between 1 and 5 acres beginning March of 2003.
Stormwater runoff from residential, commercial, and industrial areas is responsible for 21% of impaired lakes and 45% of impaired estuaries in the United States. Stormwater can become contaminated from a variety of pollutants including oil and grease, heavy metals, fertilizers/nutrients, pesticides, litter and bacteria. Common sources of pollutants include roads, parking lots, and other paved surfaces where materials have spilled or accumulated, outdoor equipment or material storage areas, construction activities, commercial properties where fertilizers and pesticides are used, and outdoor cleaning and maintenance activities that produce large volumes of wastewater like power washing, sandblasting and vehicle washing.
Wisconsin Governor Signs Law to Protect Wetlands
Wisconsin became the first state to protect isolated wetlands that were excluded from the federal wetlands program by the January Supreme Court decision in Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers (No. 99-1178, 1/9/01). The new law prohibits anyone from discharging dredged or fill material into such a wetland without a certification from the Department of Natural Resources (“DNR”) that the discharge meets all applicable state water quality standards. DNR certification is not required for normal farming, forestry, ranching, maintenance and reconstruction of damaged parts of structures that are in bodies of water, maintenance of drainage ditches, and construction and maintenance of certain farm roads, forest roads, and temporary mining roads.
Reports Say CWA Fails To Stem The Loss of Wetlands 
Under the federal wetlands program, developers must obtain permits before discharging fill or dredged materials into wetlands. Generally, the Army Corps of Engineers (“Corps”) will not issue permits unless the impacts to the wetlands are unavoidable. In such cases, the developers are be required to compensate for the lost wetlands through mitigation. This involves restoring or enhancing degraded wetlands, or creating new wetlands. Another option is for the developer to make payments in-lieu of mitigation. EPA recently issued a guidance document clarifying when developers could use payments in lieu fees (See our November 2000 issue).
A report issued by the National Research Council indicated that wetland mitigation program was not meeting its goal of "no net loss" of wetlands. The June 26th report entitled "Compensating for Wetlands Losses Under the Clean Water Act" said the mitigation program was supposed to create 1.8 acres of wetlands for every acre lost to development. Under the mitigation program, 42,000 acres of new wetlands was supposed to have been created annually since 1993 to replace 24,000 acres of wetlands lost. However, the report said that there was little evidence that significant wetlands were being created and those that were restored did not have the same ecological value of those destroyed by development. According to the report, a principal reason for the failure was that the Corps did not monitor compliance with the mitigation requirements. Instead of evaluating the effectiveness of the new wetlands, the Corps simply keeps track of the number of wetlands required to be created under the permits. Moreover, the report said the Corps did not take ecological considerations into account when determining the location and design of new wetlands. 
Meanwhile, the General Accounting Office (“GAO”) issued a report evaluating the effectiveness of the “in-lieu fee” mitigation arrangements.  In the report entitled “Wetlands Protection: Assessments Needed to Determine Effectiveness of In-Lieu Fee Mitigation”, the GAO surveyed 38 Corps’ district offices. The report indicated that since the late 1980s, the Corps had approved 63 in-lieu fee arrangements to compensate for 1,440 acres of lost wetlands. The total cost paid by developers was approximately $64 million.
According to the report,  the Corps claimed that the in-lieu option resulted in an offset or net increase wetland acreage in 11 districts. However, the GAO report said that the data did not support these claims. The report said the Corps had not tried to assess whether mitigation efforts have been ecologically successful. Instead, GAO said some districts used acreage as a measure for success because no criteria exist for evaluating ecological effectiveness. The report also found the Corps districts simply assumed success as soon as the developer paid a fee to an in-lieu organization even if no mitigation has been performed.  
In addition, 24 Corps districts also had approved ad hoc arrangements where developers pay individuals or entities that are neither mitigation banks nor considered by the Corps to be in-lieu fee organizations. The report concluded that this strategy was not working as planned. GAO said problems included a lack of record keeping and monitoring, no ecological success criteria and confusion among Corps districts as to what party is legally and financially responsible for the success of mitigation efforts.
Supreme Court Allows Owner to Bring Takings Claim for Pre-Existing Regulations
	The United States Supreme Court has ruled that a property owner was not automatically precluded from bringing a takings claim even though the owner purchased property after wetlands restrictions went into effect (Anthony Palazzolo v. Rhode Island, No. 99-2047). The owner claimed that the wetlands regulations amounted to an unconstitutional taking of his property. 
	In this case, a corporation controlled by the plaintiff purchased property with coastal wetlands in 1959. The corporation filed several development plans in the 1960s that required fill material to be placed on the property. The local planning agency denied the initial application for incompleteness and referred the other two applications to the Rhode Island Department of Natural Resources (“DNR”).  The DNR initially approved the applications but then withdrew its approval because of adverse environmental impacts. The corporation did not contest the ruling and took no further action 
	During the 1970s, the salt marshes on the property were classified as coastal wetlands and the petitioner acquired title to the property in 1978. In 1985, the petitioner submitted another proposal to fill the site but was denied a permit. The petitioner then filed an inverse condemnation petition with the Rhode Island Supreme Court.
	The Rhode Island Supreme Court ruled the owner’s taking claim was not ripe because he had never specifically sought permission to build the 74-home development on the coastal wetlands. The state court also found that the owner had not suffered an unconstitutional taking because the regulations prohibiting development of wetlands had been enacted before the plaintiff had acquired the land. The court also said that the landowner had not shown that "all value" had been taken by the regulation since he could build a substantial residence on an upland 18-acre portion of the property which had an uncontested residual value of $200,000. The court said it did not matter that the balance of the property was undevelopable. 
	In a highly splintered decision, the U.S. Supreme Court disagreed with the Rhode Island court on the first two issues. The majority ruled that the ripeness doctrine did not apply because the local council had made it clear in its prior decisions that development would not be allowed on the portion of the property containing the coastal wetlands. The Court said the ripeness doctrine did not require the filing of futile or fruitless applications. 
	A majority of justices ruled that the held the mere fact that the regulation pre-existed the purchase of the property did not automatically preclude a landowner from bringing a takings claim. The justices said that a transfer of land occurring after a regulation went into effect did not destroy the takings claim that a previous owner might be able to assert. However, there was no clear majority on the weight that notice of the regulation should play in determining if the owner had a “reasonable” investment-backed expectation. 
	The Court agreed with the Rhode Island court that the owner was not deprived of all economic use of his property since the value of upland portions of the land was substantial. The Court remanded the issue as to whether there were "investment backed expectations" that had been taken in any event by the regulation of the bulk of the parcel to an undevelopable state. 
Commentary: Following the Supreme Court's decision in Palazzolo, the Court accepted another takings case, McQueen V. South Carolina Department of Health.  The Court will rule a taking has occurred if an owner establishes that a regulation deprives him of all economically beneficial use of his property without also proving that it frustrates his distinct or reasonable investment-backed expectations.
Residential Complex Ordered To Correct Drinking Water Problems
The Pennsylvania Department of Environmental Protection (“DEP”) recently ordered the owners of Butler County complex to connect to the local public drinking water system and file a deed notice preventing groundwater from being used for drinking water purposes. Until the public water system extends lines to the complex, the owners must provide bottled water to users at the site. 
The complex’s water system serves businesses, apartments and mobile homes. The complex has approximately 15 to 22 year-round residential customers and an estimated 100 business customers each day. Last year, water samples revealed that the groundwater was contaminated with volatile organic compounds (“VOCs”). The deed notice that the owners must file must indicate that the groundwater beneath the site is contaminated with hazardous substances. 
Commentary: As we discussed in our last issue, lenders do not have consistent due diligence standards for testing drinking water on property that is to serve as collateral for a loan. Some lenders require samples for residential property that uses on-site wells while others require testing for lead in drinking water for residential properties, hotels and commercial sites with food establishments even where those properties are connected to the public water system.   

HAZARDOUS WASTES/USTS

EPA Report Indicates 43% of LUST Fund Used for Administrative Costs
An EPA report concluded that 43% of the Leaking Underground Storage Tanks (“LUST”) Trust Fund disbursed to the states was used for administrative expenses for the first six months of fiscal year 2001. Of the balance of the funds, 32% was used by states for site cleanup and 25% for enforcement purposes. As of March 2001, the trust fund's balance was nearly $1.6 billion.  Twenty-three states did not spend any LUST funds on site cleanups. 
Commentary: 27 states have been given partial authorization to administer the federal UST program while 21 states have received full delegation to administer their UST programs with limited federal oversight. Since the UST program is primarily administered by the states, the LUST Trust Fund serves as an important funding source for states to carry out their enforcement and cleanup actions. In addition to the federal LUST Trust Fund, states have established their own trust funds that may be used to help defray the cleanup costs of UST owners or operators or to satisfy their financial assurance requirements.  
GAO Study Finds Many States Lack Sufficient Enforcement Tools For USTs Violations
According to a GAO report, 89% of the 600,000 active USTs in the country have been upgraded to meet the 1998 UST design standards. However, because states fail to adequately inspect the USTs and lack sufficient enforcement authority, the report found that 29% of the active tanks are not being properly maintained and operated. 
The report entitled "Environmental Protection: Improved Inspections and Enforcement Would Better Ensure the Safety of Underground Storage Tanks" noted that only 19 states inspected USTs every three years and 22 did not conduct regular inspections but simply relied on selective inspections. As a result, the report said that 24 states did not know if their active USTs complied with the 1998 UST design standards. 
The report indicated that there were three common enforcement tools: issuing administrative fines, issuing field citations and prohibiting fuel deliveries to non-compliant tanks. However, the report found that only 30 states had the authority to issue field citations and 27 indicated that they did not have the authority to prohibit fuel deliveries. The report said this was the most effective enforcement tool. Only 8 states were authorized to use all three enforcement tools.
Another surprising finding in the report was the rate of equipment failure and incidence of leaks from upgraded or new tanks. 19 states reported frequent problems with anti-corrosion equipment, 15 states indicated leak detection equipment was frequently improperly maintained or turned off and 7 states reported problems with overfill controls. 14 states traced leaks to new or upgraded tanks while 20 said they could not confirm whether upgraded or new tanks had leaked. Some of the states said the leaks were due to poor operation and maintenance most of the states attributed the leaks to improper installation. The majority of the operational problems occurred at small businesses, non-retail and commercial companies and local governments.    
Commentary: One California county inspected 16 new or upgraded tanks and found releases at 13 of the sites. The study could not determine if the contamination was a result of leaks that took place before the USTs had been upgraded or replaced. As a result, California has launched an initiative to trace leaks at newly installed or upgraded tanks. 
Purchasers or lenders of sites with new or upgraded USTs should review the documentation associated with tank removals or upgrades to make sure that post-excavation samples were collected to determine if contamination was present prior to the installation of the new tank. If contaminated soil remains around a new tank, it can act as a continuing threat to groundwater. 
Drinking Water Wells Near Previously Closed UST Site Contaminated With MTBE 
MTBE was detected in roundwater samples collected from 13 wells located near a former Exxon gasoline service station in Quakertown, Pennsylvania. Eight wells had MTBE levels above 20 parts per billion (“ppb”) with the highest concentration at 461 ppb. Exxon has reactivated a pump-and-treat system and vapor extraction system and will be providing bottled water and carbon filtration systems to the homes affected by the contamination. 
Commentary: The significance of this case was that the MTBE was found at a site where a cleanup had been considered completed. Many UST sites that were remediated in the 1980s and 1990s were never tested for MTBE. Now, some states are beginning to review their closed UST cases to determine if those sites had been impacted with MTBE. For example, California is apparently randomly selecting closed sites to test for the presence of MTBE. As a result, during due diligence prospective purchasers and lenders should not simply rely on the fact that a site may have been issued a no further action letter for a UST cleanup but evaluate what constituents were sampled at the site and any nearby drinking water wells to assess the possibility that unknown MTBE contamination might exist at the site. 
Washington Becomes 11th State to Ban MTBE 
Washington recently became the 11th state to ban MTBE as a gasoline additive. The law limits the quantity of MTBE that can be contained in gasoline sold in the state and provides for a complete phase out of MTBE by the end of 2003. The law was enacted after tests conducted by the Department of Ecology at found MTBE at 30 of 62 sites.  Half of the sites had contamination levels that exceeded EPA's drinking water advisory standard. 
Commentary: Other states that have banned MTBE include Arizona, California, Colorado, Connecticut, Iowa, Michigan, Minnesota, Nebraska, New York, and South Dakota. Illinois is expected to implement a ban later this year.
EPA Assumes Responsibility Of Management of Nine Colorado Sites
In our January issue, we reported that EPA had been intensifying its inspections in Colorado because of concerns about lack enforcement of the RCRA program by the Colorado Department of Public Health and Environment (CDPHE). Recently, EPA Region 8 decided to take over Direct Implementation (“DI”) for managing the hazardous waste permitting and corrective action activities at nine Colorado facilities because of resource constraints at CDPHE. EPA will now have the primary responsibility for working with the nine facilities to ensure that corrective action proceeds in a timely fashion. 
Commentary: Under the Government Performance Results Act (“GPRA”), EPA identified two Environmental Indicators to measure the success of the RCRA corrective action program. Because EPA has established ambitious GPRA goals, the agency is under pressure to expedite cleanups at RCRA sites so that the sites can be classified as having the Environmental Indicators “under control”. As a result, EPA may be taking more of these actions in other states were RCRA corrective action is lagging.  
Computer Recycling and Electronic Equipment Leases Growing in Popularity
In our last few issues, we have discussed the environmental issues posed by the disposal of obsolete computer equipment. The cathode ray tubes in computer monitors may contain up to four pounds of lead as well as mercury and cadmium. Likewise, computer hard drives may contain mercury, arsenic, cadmium and other toxic chemicals.  According to a survey by Stanford Resources Inc., about 500 million PCs are expected to be obsolete by 2007. Indeed, computers and computer monitors are the fastest growing components of the nation’s waste stream. 
By contrast, many European countries have adopted Extended Producer Responsibility (“EPR”) laws that require some manufacturers to take back certain types of products at the end of their useful life. Germany is considering extending its EPR law to telecommunications equipment and the European Union is considering a directive imposing EPR obligations on the electronics industry.
EPR laws have not been enacted in North America but some states are beginning to address the disposal of electronic equipment. Earlier this year, Massachusetts became the first state to ban disposal of computer screens, television sets and other glass picture tubes in landfills. The state has collected 500,000 tons of electronic waste for recycling since the law went into effect. California recently classified cathode tubes as hazardous waste to prevent their disposal in solid waste landfills. New Jersey and Minnesota are considering bills that would ban all computer dumping and promote widespread electronics recycling. Other states are in the process of establishing electronic recycling centers through public or private centers. States without recycling center include Alabama, Alaska, Hawaii, Mississippi, Oklahoma, South Dakota and Wyoming.  The Electronics Industries Alliance has a Web site that provides gives names and addresses of places people can take their old PCs. A group of manufacturers, environmental organizations and governments have also formed a National Electronics Product Stewardship Initiative to develop incentives for increasing computer recycling. Eight western states (Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon and Washington) recently formed the Western Electronic Product Stewardship Initiative. 
In the meantime, computer manufactures are launching their own recycling programs. For example, for a fee of $29.99, IBM will accept all PC parts through its IBM PC Recycling Service. The fee includes shipping costs so consumers only have to box the equipment and send it via United Parcel Service to the company’s designated vendor. Consumers can sign up for IBM program at the time they purchase a computer or by contacting IBM. The company will either donate usable equipment to computer-needy organizations such as job training and family services centers through a nonprofit organization called Gifts in Kind International, or recycle computer parts that are not worn out or outdated. Gateway Inc. has a trade-in program that offers a rebate of up to $50 on a new computer for old computer equipment. Gateway donates old machines that still work to non-profit organizations, and recycles machines that can’t be
Other manufacturers are turning to leasing to promote reuse and recycling in corporate-to-corporate transactions. The leases allow manufacturers to maintain tighter control over products and the raw materials used to make them. Another benefit to manufacturers is that they may be able to extend the life of their products and components 
For example, under its Evergreen Lease program, an Atlanta-based carpet maker retains ownership of the carpet tile it installs. The customer leases carpet underfoot for a monthly fee while the company remains responsible for the carpet upkeep. The company will recycle the carpet when it wears out and reinstall new flooring. The program enables the carpet maker to reuse old fibers to manufacture new carpet, thus saving on raw materials costs and disposal costs.  
Another example is Kodak’s single-use camera. After the consumer returns the camera to a photo shop, the paper-and-plastic box is shipped to Kodak where it is stripped, cleaned, fitted with a new lens and paper. Kodak currently recycles 77% to 86% of the material used to make these cameras and may resell the cameras as much as ten times. The single-use camera program is so profitable that the company is hoping to use the lease-option model for other products. 
However, not all companies have success stories. For example, in 1999 Sony launched a pilot electronics-recycling program in Minnesota. The company had hoped to use 30% to 70% recyclables in its televisions. However, because of limited and inconsistent quality of plastic and glass, Sony was only able to use a fraction of recycled materials and the program became cost prohibitive.
Then there are private recyclers who collect obsolete equipment for a fee ranging from $13-$34 per item The recycler will refurbish working computers and resell them or salvage computers that cannot be repaired for parts. Precious metals may also be harvested and the plastic parts may be sent to a smelter to be burned for energy. Often times, every part of the computer is used so that not a single part winds up in a landfill. For example, Envirocycle processes 550 tons of electronics a week, including 3,500 old television sets. About 90% of the TV sets that Envirocycle demolishes are defective units that never made it out of the factory or are problem TVs returned by customers. Most of the glass is sold to a manufacturer of television glass while the plastic is shipped to California and Arizona for recycling into new plastic products Copper and other metals are also retrieved and sold for reuse.

TOXIC SUBSTANCES

EPA Brings Enforcement Action Against Apartment Building Manager For Lead-Based Paint Violations 
The EPA Region 5 Office recently filed a 2,600-count complaint against Hyde Park Realty Company Inc. for failing to comply with the lead-based paint (“LBP”) disclosure rule. EPA had launched an investigation in 1998 as part of its LBP enforcement initiative and determined that Hyde Park Realty had failed to comply with the LBP disclosure rule in 520 apartments located in 40 rental buildings managed by the company. EPA also issued notices of violations to the owners of 25 buildings managed by Hyde Park Realty. 
Commentary: Last year, we reported that EPA had discovered over 400 violations of the LBP disclosure rule after examining leasing, rental and sales contracts in just one state. As a result of this evidence, the EPA regional offices have stepped-up their enforcement of the LBP rules.  EPA has assembled an army of inspectors to conduct inspections of leases and purchase agreements where the records are maintained such as real estate or rental offices and management offices. 
Sellers, landlords and managing agents may want to consider reviewing their files to determine if they have fully complied with the LBP disclosure rule. If they find non-compliance, it might be advisable for them to consider using the EPA auditing policy to voluntary disclose those instances of non-compliance. Under this policy, violations that are voluntarily discovered and reported may be eligible for a 100% penalty reduction if certain criteria are met.
EPA Fines UCLA and UCSD for Failing to Register Transformers
In the latest action under EPA's university enforcement initiative, the University of California was fined $9,350 for failing to register three electrical transformers containing PCBs at its Los Angeles and San Diego campuses. In addition to paying the fine, the University of California has agreed to dispose of the old transformers and install non-PCB replacements. This case was initiated after inspections found that two PCB transformers at UCLA and one PCB transformer at UCSD were not registered with the EPA. This is the third enforcement action that the EPA Region 10 Office has taken to encourage owners of PCB transformers to register and properly handle their equipment. 
Commentary: Transformers installed in apartments, residential and commercial buildings, industrial facilities, campuses, and shopping centers constructed before 1978 may contain dielectric fluid with PCB concentrations exceeding the 50 parts per million (“ppm”). EPA has established regulations that govern the use, storage and disposal of transformers that have more than 50 ppm of PCBs. Generally, transformers located at commercial properties are owned by utilities who will have the responsibility for registering and maintaining the transformers as well as responding to any spills.
Usually, a transformer will have a nameplate attached to one side of the unit indicating the trade name of the dielectric fluid, the approximate weight in pounds, and the amount of fluid, usually in gallons. Since PCBs were marketed under different trade names, the nameplate on a PCB Transformer may not carry the specific term "PCBs". Instead, the nameplate may have of the following PCB trade names: Abestol, Aroclor, Askarel, Chlophen, Chlorextol, DK, EEC-18, Fenclor, Inerteen, Kennechlor, No-Flamol, Phenoclor, Pyralene, Pyranol, Saf-T-Kuhl, Solvol Non-Flammable Liquid. If the nameplate says "PCBs" or any of the names on the above list, then the transformer most likely contains PCBs in concentrations of between 600,000 and 700,000 ppm. 
If the transformer nameplate does not have a nameplate or the label is illegible, the utility company should be contacted if it is the owner of the transformer. In the absence of any identifying labels, EPA regulations state that the transformer should be presumed to contain PCBs. 
Owners or operators of commercial buildings are responsible for reducing the potential threat of a fire in or near a PCB Transformer. For example, combustible materials must not be stored within a PCB Transformer enclosure or within 5 meters of a PCB Transformer enclosure or PCB Transformer. Property owners or tenants who own PCB Transformers (containing more than 500 ppm of PCBs) must comply with the following requirements: 
•	Certain PCB Transformers must be equipped with enhanced electrical protection or removed from service; 
•	All PCB Transformers must be registered with fire response personnel; 
•	Quarterly visual inspections of each PCB Transformer must be performed; 
•	Daily visual inspections must also be conducted if a PCB Transformer is leaking; 
•	Proper PCB identification labels must be affixed to the access of the transformers and the transformer itself. 
•	All records for inspections and annual documents must be retained for a minimum of three (3) years after the transformer has been disposed.
•	PCB Transformers removed from service can be temporarily stored up to 30 days on pallets while incorporating inspection safeguards.
•	 PCB Transformers may be stored for disposal for up to one year in a secure area that meets EPA requirements. 
If there is a PCB spill, the owner or operator of the property should report the spill within 24 hours to the EPA Regional Emergency Response Section and the National Response Center (800-424-8802). Steps should be immediately taken to control the spread of the spill by damming the leak, using absorbent materials, and cordon off the area. Once a spill is contained, cleanup must be initiated within 48 hours of the spill.  

PCB Regulations May Apply to Fluorescent Light Bulbs
In our last issue, we reported that EPA was beginning to focus on the improper disposal of fluorescent light bulbs. We indicated that companies should determine if the lights exhibit a hazardous waste characteristic and therefore subject to RCRA before disposing fluorescent light bulbs. In addition to a RCRA, fluorescent light bulbs might be subject to the TSCA PCB regulations. 
Fluorescent lights contain ballasts that may contain PCBs. Ballasts manufactured before 1978 should be considered PCB fluorescent light ballasts (“PCB Ballasts”) even if they do not contain a stamp that says "NO PCBs". This is because the pre-1978 ballasts usually have a thimble-sized capacitor that may contain an ounce of nearly pure PCBs. The compacitors are usually buried in a black insulating material inside the ballast known as “potting compound”. If the capacitor leaks, the potting compound can become contaminated. If a leaking capacitor has been replaced or repaired, the contaminated potting compound should also be replaced. 
Under the EPA PCB regulations, non-leaking PCB Small Capacitors may be disposed of as municipal solid waste unless they are disposed by the manufacturer of the small capacitors or by a company that included the small capacitors in its products. 
The small capacitor exemption does not apply if a PCB Small Capacitor is leaking or if the potting compound contains PCBs at concentrations greater than or equal to 50 ppm. In such circumstances, the PCB ballast would be considered a PCB Article and the entire PCB ballast would have to be regulated as a PCB waste which may only be disposed a TSCA-approved incinerator, chemical waste landfill or by an EPA-approved alternate PCB disposal technology.   
While non-leaking PCB small capacitors are not subject to the PCB disposal requirements, some EPA regions have recommended that best management practices be used for these items. For example, EPA Region III recommends that no more than 25 intact and non-leaking PCB ballasts be disposed of within a 1-year time period in a facility municipal or industrial solid waste landfill. These PCB ballasts should be packed in a lined, steel drum containing an absorbent material.
Some recycling facilities have been approved an alternate disposal methods for disposing ballasts containing less than 50 ppm of PCBs. The recyclers must have EPA approval to separate the components of the PCB ballasts. In addition, the facility must receive EPA approval if the facility will store more than 500 gallons of liquid or 70 cubic feet of non-liquid PCBs. 
Shopping Center Tenant Liable To Adjacent Owner for Dry Cleaner Contamination 
Many property owners and lenders have been comforted by state dry cleaning laws that seem to limit the liability of owners of property that have been contaminated with dry cleaner solvents. However, the limited nature of the protection afforded by these laws was demonstrated in Courtney Enterprises v. Publix Super Markets, Inc  (2001 Fla. App. LEXIS 5109, 2d DCA) where a property owner was allowed to maintain a common law action against a shopping center tenant. 
In this case, Publix Super Markets, Inc. (“Publix”) had operated a shopping center in Fort Myers, Lee County under a 99-year lease that commenced in 1970. From 1978 to 1996, Publix had leased space in the shopping center to a dry-cleaning establishment. In 1990, the plaintiff discovered that a tenant on its property had discharged petroleum into the soil and groundwater and the county installed a remediation system to address the petroleum contamination. In 1991, Publix found a leaking 55-gallon drum of Perchloroethylene ("Perc") sitting outside the dry cleaner but did not take any action to assess the extent of the contamination until 1995. In 1996, the county was forced to remove the groundwater treatment system at the adjacent property because it was drawing the Perc contamination onto the plaintiff’s property. As a result, the plaintiff commenced a lawsuit against Publix in October 1996 seeking damages for negligence, nuisance, trespass, and strict liability. The plaintiff asserted that contamination had materially reduced the value of its property. 
Publix subsequently enrolled in the state dry cleaner program which provides that a person who owns, operates, or who otherwise could be liable as a result of a discharge from a dry-cleaning facility shall not be subject to administrative or judicial action brought by any government agency or third party to compel rehabilitation or pay for the costs of rehabilitation of environmental contamination resulting from dry-cleaning solvents. The dry cleaning fund also reimburses property owners for cleanup costs associated with Perc contamination. 
Publix then filed a motion for summary judgment, claiming that it was immune from any liability under the state dry cleaner trust fund. The plaintiff filed an affidavit from the Department of Environmental Protection case manager for the site who said that a clean-up was scheduled for the site, and that it would proceed if the legislature approved funding for the program and the site had a ranking high enough to qualify for the funding. The trial court granted summary final judgment to Publix, ruling that sections 376.3078(3) and (11) of the Florida Dry Cleaning Statute granted immunity from all causes of action.
The appellate court reversed, finding that the express statutory language did not abolish common law remedies. The court said that statutes should not be construed to abolish common law rights unless absolutely necessary. Indeed, the court point out that section 376.313(3) stated that the remedies were cumulative and not exclusive. 
Publix argued property damages were included in the definition of restoration costs that were addressed by the statute. However, the appeals court said that the measure of damages under the common law was either the diminution of value or the restoration costs but not restoration costs that exceeded the diminution in value of the property. Since section 376.3078 immunized a real property owner from liability for restoration costs, the court said it should not be read to eliminate common law causes of action altogether but to limit damages in those actions to diminution in property value. The court noted that in this case, the plaintiff had not sought damages for restoration costs but only the diminution in property value. 
The court did say it was troubled by the fact that the decision would allow the plaintiff recover damages that Publix may not be able to recover if the state eventually funded the cleanup of the plaintiff’s property. However, the court said this was an issue that had to be addressed by the legislature.
Commentary:  Perc is a chlorinated hydrocarbon that was originally developed as a metal degreaser for airplane parts. More than 34,000 dry cleaners use 57 million pounds of Perc each year. These businesses may vent Perc into the air and generate a sludge that must be incinerated or disposed of a hazardous waste. Dry cleaners also often discharge wastewater containing Perc down floor drains. A California study in the mid-1990s found that discharges from leaky sewer pipes were the leading cause of Perc contamination in soil and groundwater in that state. 
       A 1994 study by the National Institute for Occupational Safety and Health found that dry cleaning workers had seven times the average rate of esophageal cancer and twice the rate of bladder cancer. A study published in the February 2001 issue of the American Journal of Industrial Medicine found excess deaths among 1,708 dry cleaning workers exposed to Perc for at least a year before 1960. 
      People living near dry cleaners may be exposed to potentially high levels of Perc if vapors move up through apartment buildings or office buildings. Indeed, New York recently forced dry cleaning shops in residential buildings to meet strict new standards for equipment, pollution prevention and ventilation. 
       In 1996, Consumers Union estimated that there are 150 excess cases of cancer among every million people who wear freshly dry cleaned clothing once a week for 40 years. For the study, a panel of volunteers was given a garment to wear that had been picked up from the dry cleaner the day before. A strip of activated carbon inside a porous plastic covering was attached to the lapel and measured Perc emissions. The cancer risk was estimated based on the Perc exposure levels. As a result, Consumers Union recommended that the people should remove clothes from the bag as soon as they get home and hang the clothes outside or in a seldom-used room for a few days to give Perc residues time to dissipate. Newly dry-cleaned clothing that has an odor should be returned to the cleaner to further high temperature drying which should eliminate the residual Perc. 

SUPERFUND/BROWNFIELDS

EPA Brownfield Pilots Shifting to Remediation 
In our last issue we discussed the latest round of brownfield pilots awarded by EPA. Those grants accelerated a trend away from the brownfield assessment grants and towards funding cleanups of brownfield sites. Of the $38 million in grants made during the last round, almost 70% of the funding was directed to brownfield cleanup revolving loans. In addition, the majority of the 26 revolving loan grants awarded were for the maximum $1 million allowed under the brownfield cleanup revolving loan program. 
Local Officials Object to EPA Capping Remedy
Since EPA adopted a policy in the mid-1990s to take land use into account when selecting cleanup remedies under CERCLA, nearly 70% of the remedy decisions approved by EPA have involved the use of institutional or engineering controls such as impermeable caps or use restrictions. However, many communities are objecting to cleanups that allow residual levels of contaminants at sites. The communities are concerned that the controls may not be maintained and that they could end up with another Love Canal in their midst-which after all was a failed institutional control. 
For example, at a site in Des Moines, EPA approved a remedy that involved covering the site with a 2-foot-thick asphalt cap. The county acquired the land through a tax foreclosure in the 1960s. However, local officials are proposing a more thorough cleanup that could initially cost three times the estimated $870,000 cost of the cap but could be more cost effective over the long term since monitoring would not be required.
Meanwhile, EPA will be requiring additional remediation at a former 33-acre dumpsite near Detroit that had been capped in 1995 as part of an EPA-approved remedy. Subsequent groundwater monitoring required by the remedy revealed a small zone of contamination had migrated north of the main pollution plume. 
Commentary: According to a recent study by the Environmental Engineering Committee of the EPA Science Advisory Board, monitored natural attenuation (“MNA”) has been used at 25% of the Superfund sites with contaminated ground water. MNA does not involve active treatment of groundwater. Instead, contaminants are allowed to naturally degrade through bacterial activity and other chemical processes. The responsible party may also inject substances into the soil or groundwater to stimulate the growth of aerobic bacteria for petroleum contamination or anaerobic bacteria for chlorinated solvents (See the article on innovative technologies in our March issue for more information).   
Corps Halts Dredging Project at NY Brownfield Site 
In our April 2000 issue, we discussed how the Army Corps of Engineers was playing an important role in the development of waterfront brownfield properties by incorporating brownfield projects in its Civil Works program. 
One of its more popular programs is using dredged materials to cap brownfield sites. Unlike other Corp sponsored programs, there is no cost sharing component and no cost limitations on these projects. The federal government will fund the estimated cost of dredging and disposing but if the project exceeds the cost estimate, the non-federal sponsor will be required to pay for 25% of the overrun cost.
The Corps may not use sediments that are contaminated with hazardous, toxic or radioactive wastes. Indeed, the Corps was recently forced to halt dredging operations at the Glen Cove brownfield site in New York after learning that 40% of sediments dredged from Glen Cove creek were radioactive. The City of Glen Cove had hoped to re-use approximately 22,000 cubic yards of dredged material as a cap for the brownfield site. EPA had originally determined that the sediments to be dredged were not radioactive. 
Minnesota Brownfield Grant Will Be Used to Cleanup Duluth Site
The Minnesota Department of Trade and Economic Development recently awarded  $168,000 to help remediate a 65-acre site in Duluth that was formerly used as a cement plant. The city of Duluth plans to purchase the site from the current landowner, USX Corp, when the cleanup is completed and will develop it into an industrial park. 
The total cleanup is estimated to cost $224,000. The Duluth Economic Development Authority and USX CORP will share the balance of the $56,000 in cleanup costs. The cleanup will involve excavating 1,500 cubic yards of contaminated soil and placing a cap on contaminated sites. 
3 Sites Selected for Rebuild Now-NY Program 
New York recently announced that three sites have been selected for the ReBuild Now-NY pilot program. The program promotes the cleanup and reuse of ``brownfield’’ sites with high economic potential by creating an inventory of “shovel-ready” sites. Before sites are offered for redevelopment, state contractors conduct a site investigation, design a remedial plan and negotiate a voluntary cleanup agreement with the Department of Environmental Conservation. The three sites are the Village of Green Island Industrial Park in Albany County, the Francis S. Gabreski Airport in Suffolk County and Parcel Two of the Union Ship Canal in the City of Buffalo.
Indiana Enacts Brownfield Tax Credit
Developers of brownfield sites in Indiana will soon be able to apply for tax credits for cleanup costs incurred while developing contaminated properties. Under the new legislation, developers may be eligible for a tax credit of up to 10 percent of costs with a limit of $100,000.  The new law takes effect Jan. 1, 2002 and applies to remediation costs incurred after December 31, 2001.
Brownfield Site May Be Impacting Residential Development
A former landfill that was supposed to serve as open space for a residential development may be leaching into a retention pond at the development. The Maine Department of Environmental Protection (“DEP”) provided financial assistance to the developer of the subdivision to help pay for the cap. After the project was completed, the developer sold the subdivision to the current owner but remains responsible for maintaining the rest of the property. The DEP does not believe that the material from the landfill poses a health threat to residents but will be taking samples over the next few weeks.
Commentary: As residential developments become more common on or near brownfield sites, it is important to use the due diligence process to determine if the remedy such as a cap or groundwater monitoring system is properly functioning and adequately maintained.  
NJEDA Announces $328,000 in Municipal Brownfield Grants
The New Jersey Economic Development Authority (“NJEDA”) announced it had awarded seven new grants for municipal brownfield projects. The sites are located in the communities of Egg Harbor City, Elizabeth, Livingston, North Wildwood, Rahway, Trenton and West Deptford. The local governments will use the funds to initiate or complete investigations at the sites.
The grants are funded from the Hazardous Discharge Site Remediation (“HDSR”) program.  The NJEDA and the DEP operate the program jointly. The DEP reviews applications to determine eligibility and the scope of work needed to investigate and restore each site. The NJEDA manages the fund and makes grants or loans to projects approved by the DEP. 
Municipalities can apply for up to $2 million per year in HDSR grants and loans for projects within their boundaries. The funds may be used to conduct preliminary assessments, remedial investigations and to design remedial actions on sites that the municipalities have acquired through foreclosure or purchase, or on which they hold tax sale certificates. 
In 2001, NJEDA has approved 30 municipal HDSR projects with a total value of nearly $3 million. Since the inception of the HDSR in 1993, NJEDA has awarded over $41 million for 500 municipal brownfield projects. 
Latest EPA Prospective Purchaser Agreements 
EPA recently entered into a Prospective Purchaser Agreement (“PPA”) with Solutions Way Management of Huntington, West Virginia who plans to acquire a commercial property located in Waynesboro, Virginia. Genicom Corporation who is the current site owner was issued a RCRA 3008(h) in 1990 to address VOC contamination in the soil and groundwater. Genicom capped two former waste lagoons and the state of Virginia issued a post-closure permit in 1999. Genicom was required to post financial assurance for the maintenance of the cap. In 2000, Genicom filed a chapter 11 bankruptcy proceeding and converted to a chapter 7 liquidation in 2001. Genicom notified EPA that it had a purchaser for the site but if the closing did not take place by the effective date of the bankruptcy plan, the property would be abandoned pursuant to section 554 of the bankruptcy code. Under the PPA, the purchaser is required to inspect and maintain the cap, maintain records at the Site, be responsible for Site security, and agrees to comply with institutional controls prohibiting disturbing the cap and using the groundwater. The purchaser will have to submit detailed work, sampling and analytical plans to EPA if it proposes to develop the Site. The agreement also contains dispute resolution procedures. In return, the purchaser will receive a covenant not to sue under CERCLA and RCRA. Since EPA did not incur any CERCLA response costs, the purchaser was not required to make any cash payments. However, the purchaser will be subject to stipulated penalties and enforcement costs incurred by the government if it fails to comply with the PPA. 
EPA entered into a PPA with Home Depot U.S.A., Inc. for two parcels located within the San Fernando Valley Crystal Springs (Area 2) Superfund Site. Home Depot plans to acquire two contiguous parcels located within the Glendale Operable Units to construct retail store. Under the PPA, the purchaser will make a one-time payment of  $200,000.
The City of Phoenix entered into a PPA to acquire six  parcels of land comprising 22.1 acres of Operable Unit 2 of the Motorola 52nd Street Superfund Site. The city plans to purchase or condemn the parcels as part of an expansion plan for the Sky Harbor International Airport in Phoenix. The city plans to use these parcels for aviation-related purposes, including airfields, terminals, parking operations, air cargo operations, car rental operations, airport administrative functions and aircraft maintenance operations. Under the PPA, the city will pay EPA $100,000, provide access to EPA when necessary and will implement institutional controls if requested by EPA.
Commentary: The Genicom PPA was noteworthy because it was the first agreement involving a site was subject to RCRA-corrective action. 

ENVIRONMENTAL CASES INVOLVING CORPORATE AND REAL ESTATE TRANSACTIONS

 Alaska Supreme Court Clarifies Scope of State Lender Liability Exemption
The Alaska Supreme Court allowed the Federal Deposit Insurance Corporation (“FDIC”) to maintain a cost recovery action against a prior landowner and its tenants.  In FDIC v. Laidlaw Transit (S-8540, Aka. 4/12/01), Sun Savings and Loan had foreclosed on land owned by Burton Carver & Co. in 1988. Carver and three tenants apparently released hazardous substances, including fuel oil, at the site.  In December 1989, the Alaska Department of Environmental Conservation (“DEC”) asked Sun Savings to enter into a Compliance Order by Consent for the purpose of investigating and remediating contamination on the property. After Sun Savings failed, the Resolution Trust Corporation (“RTC”) took over its assets.  The FDIC succeeded the RTC and performed a voluntary cleanup at the site. The FDIC then filed its cost recovery action under the state Superfund law. The federal district court certified the case to the Alaska Supreme because that court had never addressed if a private right of action existed under the state superfund law. 
The defendants argued that the FDIC was not entitled to bring a cost recovery action because the state Superfund law provided that any entity that may be required to take financial responsibility for cleaning up a contaminated site was a potentially responsible party. Since the FDIC stood in the shoes Sun Savings who owned the contaminated property at the time of the release, the defendants claimed that the FDIC was a PRP.
The court said that  the FDIC was the ultimate receiver of property pledged as security to Sun Savings but that FDIC had not addressed the scope of the state secured creditor exemption so the exact status of FDIC was unclear. Since the federal district court's certification did not require the court to interpret this secured creditor provision or determine whether FDIC is a potentially responsible party, the court declined to do so.  Nevertheless, the court distinguished CERCLA caselaw holding lenders liable without actually participating in the management of the facility since the state law appeared to focus on the owner at the time of the release. In contrast, the court pointed out that  CERCLA applies to subsequent owners. 
State Court Rules Owner Cannot Recover Demolition Costs of Contaminated Building 
Like CERCLA, many state superfund programs allow persons who perform cleanups to recover their costs from responsible parties. However, unlike CERCLA which requires recoverable costs to be consistent with the National Contingency Plan (“NCP”), many state programs do not have such limitations on the kinds of costs that may be recoverable. This is particularly true with state voluntary cleanup programs that use streamlined cleanup procedures. This uncertainty often spawns litigation over what costs may be recoverable under a statute. 
For example, the Ohio Court of Appeals recently ruled that a landowner who demolished contaminated buildings was not entitled to recover those costs under the state voluntary cleanup action. In Burrell Industries Inc. v. Ohio Department of Transportation (Ohio Ct. App., No.00AP0900064, 6/22/01), the plaintiff acquired title to 11 acres of land that was contaminated with TCE. The plaintiff demolished buildings and then sold the property but did not remediate the contamination. The plaintiff then filed a contribution action against the defendant to recover the costs of its voluntary cleanup and diminution of property value. 
After the parties conducted discovery, a trial court granted the defendant’s motion for summary judgment and that decision was affirmed an appellate court. The court found that the plaintiff had not commenced a voluntary cleanup action and therefore could not pursue a statutory right of contribution for its costs. The court noted that the plaintiff had not remediated the contamination before or after the sale, and had not even conducted an environmental site assessment of the property. The only investigation that had been performed was by the bank who had owned the property in the past and had leased mineral rights to the plaintiff. 
The court said that the state voluntary cleanup program excludes from the definition of “voluntary action“ any costs to render the property suitable for a higher use than its current or most recent use which is above and beyond any expenses that are reasonably necessary to protect public health and safety and the environment. The court noted that the record showed that the plaintiff had acknowledged tearing down of the building at the property not as part of a covered voluntary action cleanup but rather to make the property more attractive to potential buyers.
Commentary: The question of what costs are reimbursable is often at the center of environmental-related contract litigation. Parties in a transaction will allocate liability for cleanup costs without precisely defining what kind of work or conditions may be covered. For example, a seller may agree to indemnify a purchaser for costs of remediating contamination. However, if the purchaser is going to develop a site, it may excavate contaminated soil for footings and other structures that may not had to be remediated under state cleanup standards for commercial properties. Another common scenario is asbestos or lead-paint in buildings. These materials may be in good condition at the time of the transaction but the purchaser may have to incur costs to remove those materials during subsequent renovation or remodeling work. To avoid having a judge determine several years later what costs were intended to be covered by a contract, parties should thoroughly review the environmental issues at a site and then clearly define the costs that are to be allocated by the various parties in the contract.

Copyright (c) 2001 by Lawrence Schnapf. The Schnapf Environmental Report is a bi-monthly newsletter which provides updates on regulatory developments and highlights significant federal and state environmental law decisions affecting corporate and real estate transactions, and brownfield redevelopment. The newsletter is published by Law Professor Lawrence P. Schnapf, 55 E.87th Street, #8B, New York, New York 10128. Telephone: (212) 996-5395. Fax: (503) 213-9314. E-Mail: LSchnapf@environmental-law.net. Subscription rate for the Schnapf Environmental Report is $95 for one year (six issues) or $25 per issue. 
We also offer a seminar  “Environmental Problems in Business Transactions” which has been approved by the New York Continuing Legal Education Board as an Accredited Mandatory Continuing Legal Education (“MCLE”) Program. A course book with transactional forms is included with the seminar. The course book may be purchased separately. The seminar can be conducted at your office or at periodic department meetings that you might organize over the course of the year. If you are interested in this seminar or purchasing the course book, please contact Lawrence Schnapf. 
The information contained in this newsletter is not offered for the purposes of providing legal advice or establishing a client/attorney relationship. Environmental issues are highly complex and fact-specific and you should consult an environmental attorney for assistance with your environmental issues.